trust 267

One trust sells real estate to another trust, realizing a small loss. Trusts have same trustee and beneficiaries. Is the loss limited under 267?

Two trusts are not listed under 267(b).

267(c)(1) applies constructive ownership rules to ownership of stock, which is not applicable.

I am questioning myself because it doesn't seem logical to me that the two trusts would not be related under this code section. Am I misunderstanding something, or is this correct? Thanks for any help.

Doesn't 267(b)(5) cover it?

Ick. I would be more worried about characterization as distributions. What was the purpose here?

are the beneficiaries also the grantors?

267(b)(5)

A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts;

Maybe so. I think I was getting confused because we have three parties in this sentence, the fiduciary, the trust and the grantor.

You are saying that the sentence could also say

"Two trusts, if the same person is the grantor of both trusts" ?

Dennis, we have to make some sales of partial interests to pay off loans between the trusts before making distributions. One trust had cash, the others do not, and the first trust has been paying expenses on behalf of the others. The beneficiaries are all the same people, but they have different interests in each trust.

Henry, no they are not.

You are saying that the sentence could also say

"Two trusts, if the same person is the grantor of both trusts" ?. I think so.

When I first read it, I wondered if it was saying the trustees were potentially the related parties - as if you and I were each trustees of trusts created by the same person, then transactions between us would be subject to 267. The trusts being the related parties makes a lot more sense.

Oh dear. Personally I would have been standing two steps behind the attorney. Certainly not comfortable booking a loss. How about getting all beneficiaries to sign off on an exchange of property for debt (kind of a reformation to restructure initial funding) You would want the agreement to cover similar future transactions. In essence you are saying we think it would have better to put some of the cash and some of the property in different trusts.

Two trusts are not listed under 267(b).

Then what does (b)(5) mean?

Jeff - to me, language is not clear, as explained above.

Dennis - amounts are small. It is not a big deal. I don't think what you propose is an option anyway. Trusts without $$ were already funded and irrevocable long ago, upon death of first spouse.

From my point of view a percentage difference among beneficiaries is not enough to avoid relationship under §267. I also don't think there is any way to make this transaction arms length, hence the suggestion that what everyone agrees to is fine.

Jeff - to me, language is not clear, as explained above.

I read what you wrote. If the trustees are doing things in their personal capicities, and not as Trustees, then no related party issues (assuming it’s not mom and son, for example). Otherwise, you have potential issues.